Adam Smith's Lost Legacy

Monday, November 30, 2015

NEW BOOK ON SMITH FROM PRINCETON ANNOUNCED

I RECEIVED THIS MORNING SPARSE DETAILS OF NEW BOOK BY RYAN HANLEY FROM PRINCETON UNIVERSITY PRESS DUE IN JANUARY 2016:

"ADAM SMITH: HIS LIFE, THOUGHT, AND LEGACY"

I LOOK FORWARD TO READING IT BECAUSE PROFESSOR RYAN HANLEY IS A PROVEN DISTINGUISHED AND PUBLISHED SCHOLAR ON ADAM SMITH'S MORAL PHILOSOPHY.
HE HAS VISITED EDINBURGH (AND KIRKCALDY) AND ADDRESSED SEVERAL SEMINARS WHICH I ATTENDED.

Saturday, November 28, 2015

ERUDITE BUT STILL LACKING FACTS ABOUT ADAM SMITH

“Now that we are in the Age of the Anthropocene, we can agree with Harari that hyper-belief in capitalism is just another cult: “Capitalism began as an economic theory [and] assumed faith in the future” via Adam Smith’s “invisible hand” – faith in a doctrine of continual material growth. …

… Adam Smith’s capitalist dogma demanding worship at the shrine of “growth,” with a divinely invisible hand hovering overhead, is one of these splintered little beliefs Whitehead discussed in 1925.”

(“Anthropocene: coined by Paul Crutzen and Eugene Stoermer in 2000 to denote the present time interval, in which many geologically significant conditions and processes are profoundly altered by human activities”.)

Comment

McCaslin’s writing does not lack erudition. He does, however, lack focus in respect of the significance of Adam Smith’s so-called “invisible hand” (IH).

For Smith the metaphor of “an invisible hand” had nothing like the significance is has gained since his use of it (only twice) over two centuries ago. A phenomenon not unconnected to the fact that so few scholars read his books (all still in print).

The IH has become a parody of Smith’s meaning. Indeed, while Smith was alive and for near on a hundred years after he died in 1790, less than a dozen persons mentioned his use of the IH at all. Before 1948, perhaps a dozen more mentioned it, until Paul Samuelson referred to a false version of the IH in his best selling book of 5-million sales, Economics: an introductory analysis, McGraw-Hill, 1948 and 19 editions to 2010.

After Samuelson, a virtual snow storm of imaginative references to false versions of the IH still hits all media outlets and public discourse. Moreover, most such references spread the myth, namely that Adam Smith meant by that selfish motivated market actions that allegedly led to “public benefits” and this myth was somehow “miraculous”, the latter designation a small step to McCaslin’s theological assertions, see:

Gavin Kennedy: Paul Samuelson and the Invention of the modern economics of the Invisible Hand., 2010, vol. 3. History of Economic Ideas, vol xviii).

For my criticism of ideas that Adam Smith remained religious after 1744, see:

Gavin Kennedy: The Hidden Adam Smith in his Alleged Theology. Journal of the History of Economic Thought, 2011, September,vol. 13 (3). pp. 385-402 and

9. Two “invisible hand” types exist. Sometimes local incentives combine to generate good group outcomes. Sometimes they undermine group goals. As Charles Darwin saw, these bad invisible hands create spontaneous disorder, which local incentives can’t cure.

10. Parts relate to wholes in two distinct ways. Sometimes we can predict how wholes behave from the properties of their parts. Other times not; it’s more complicated.

11. The field of “complex systems” studies these trickier beasts. That’s an unfortunate name — jet engines are complex but predictable, and two simple parts can generate unpredictable complexity (Wolfram Rule 30).

12. Markets are the most powerful social forces on earth, they shape how billions of people live. Let’s get their whole story straight. We can’t afford to continue ignoring their complicating logic.

For less one-sided stories, and more on efforts to deploy tools and ideas from complex systems, evolution and business, see Evonomics.”

Comment

Jag Bhalla is a prolific blogger and I have commented on his (always well written) work on Lost Legacy before.

Here he writes an intelligent sceptcism about Smith’s so called claim for the powers of “an invisible hand”.

Unfortunately Jag’s claim is a false one; Smith did not make a general claim at all. That is a myth created by Paul Samuelson in his 1948 textbook: “Economics: and introductory analysis”, page 36 (McGraw-Hill) where Samuelson created a myth that claimed for Smith the assertion that “selfish” behaviours led to “public benefits”, which by ideological osmosis became a general proposition of what Smith meant by using the now famous metaphor.

In fact, Smith’s statement was somewhat more modest. First he made no mention of “selfishness”; second he gave an example with much more modest pretensions.

Smith discussed a “merchant” who believed that foreigners in international trade were less reliable than domestic merchants and therefore such merchants avoided foreign trade and kept their capital invested domestically where they could keep a closer eye on it and, should they be deceived they, could seek redress in local courts whose probity was more reliable than foreign courts. They also avoided shipping costs and the costs of loading and unloading their cargoes and also the additional worry of what happened to their cargo once it was out of their sight.

Such merchants invested their capital domestically, which Smith noted added to the total domestic investment of all domestic merchants, but crucially their decision to invest locally was made because of their fears of investing abroad.

In short their motivation was what we would call “risk avoidance”. However, their intentional action was to protect their capital, but, as he also noted, the unintentional consequence of their motivated action was that it also added to “domestic revenue and employment”.

Now it was the unintentional consequence which was a “public benefit”.

They did so because their motivation led them intentionally to the action of investing locally. Metaphorically they were led by “an invisible hand” to an action that unintentionally led to a public benefit - specifically in this case of adding to local “GDP” in modern terms.

Now not all motivated actions lead to “public benefits”. There is no rule in Smithian economics that they did so. In fact, anybody actually reading “Wealth of Nations”, with its many examples of “merchants and manufacturers” acting from selfish motives that decidely were not public benefits in Smith’s opinion,could possibly come to the popular modern myths of the “invisible hand” metaphor.

I can only conclude that far fewer than the small number of economists, let alone numerous political idealogues, who believe in Samuelson’s myth that Smith said that “selfish” actions led to public benefits, have actually read Wealth of Nations, or even properly read, Book IV of WN, in which Smith used the “invisible hand”.

As Smith did not assert the ideas Jag Bhalla claims for him, I think Jag should withdraw the charges he makes against Smith in his use of the “invisible hand” metaphor. The errors Jag points out are solely in the imaginations of those many modern economists who simply copied what Samuelson claimed in his best selling introductory textbook.

“So far the invisible hand has been dealing out slaps. Next time - the fist!”

4

Church of the Invisible Hand HERE is a denomination of Deism. We believe that there may have been a God who created the Universe, but that God does not perform Miracles within that Universe. We believe that the best expression of God's will for us, if God has any will for us, is the set of Natural Laws that govern the Universe, Founded by User:FriarRich.”

Thursday, November 19, 2015

A THOUGHT FOR YESTERDAY AND TODAY

I regularly receive comments from readers, which are always welcome. Most are published, excepting those inviting readers to sex contacts (we were ‘bombed’ a few years back, hence the use of Moderation) and those that are commercial with no connection to the History of Economic Thought.

In this connection I would welcome readers passing on news of new books and articles on Adam Smith and others, which I would feature on Lost Legacy.

A recent reader from 2007 comments on my post of 20 September, 2007: “A Misleading Quotation Exposes the Ignorance of the Quoter”.

I re-post a couple of paragraphs from my original post. They encapsulate my ideas from the early days of “Lost Legacy”. I think they are still relevant.

“Those hunting societies in Europe and the Near East 8,000 to 10,000 years ago, after the last ice-age, that formed small settled societies, developed civil governments among which problems they faced was who lived where in the settlements. This required the invention of the role of private property. Without such a concept they could never have developed shepherding (Adam Smith’s second age of mankind) to solve the elementary problem of who owned which deer, sheep, pigs or cattle, and they would never have gone on to develop agriculture (Adam Smith’s third age of mankind), from which, as they say, the rest is history."

Now there may be some (I’ve certainly met a few) who regret the long run consequences of that fateful decision of individuals to abandon relying on hunting towards the end of the ice-age and starting mankind, unknowingly and unintentionally, to create the recent history of mankind as we know it. There are even some still surviving who would welcome the end of property, though they wish to retain all the appurtenances of civilisation at the same time. I admire their self-sacrifice of the lives of billions of humans, including themselves, who would never have been born if the ragged survivors of the last ice-age had reverted to hunting as many did in the rest of the world and were found in the same state they were in when the descendants of the pastoral and farming tribes found them from the 15th to the 18th century.

I had an additional thought on what happens when humans from different levels of economic and technological development find or are found by others.

These historical events did not justify nor excuse the largely abominable treatment meted out to those our predecessors who found earlier orginal societies and their peoples, including genocide, slavery, racism, social and sexual exploitation.

Should human kind ever begin to explore the Universe, I fear for the prospects of any living kind they come across. Moreover, should any living kind visit Earth, I would not expect any good news to come about as a result of their contacts with our descendants.

Wednesday, November 18, 2015

FISHING AMONG PFOOLS

“Akerlof and Shiller claim to have cast-iron proof for their thesis. It’s all Adam Smith’s fault. His concept of the Invisible Hand has led to a “standard economics” that celebrates greed and ignores market manipulation; that preaches that markets are perfect and economic actors purely rational. “If business people behave in the purely selfish and self-serving way that economic theory assumes,” they write, “our free-market system tends to spawn manipulation and deception.

But which business person derives his practices from economic theory?

What Akerlof and Shiller are actually condemning is human nature. Moreover, once we abandon caveat emptor for “Let the government beware for us” we are on a slippery slope towards losing not just choice but freedom. Such concerns are dismissed by claiming that those who warn against the moral hazards involved in government “would also tell us to do away with fire departments, because there would then be no fires since people would be more careful.”

Adam Smith in fact never suggested that markets were, or could be, perfect. He wrote of “the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.” He was also an avid student of human irrationality which, he noted, was infinitely more dangerous when it came to politics and religion than to shenanigans by tradesmen, of which he was well aware. He pointed out that the market controls such shenanigans, not least by rewarding a reputation for honesty, although the law is needed to protect us from fraudsters. Akerlof and Shiller’s answer to the value of reputation is to claim that it is accumulated so that it can be “mined” to cheat people.”

Comment

Peter Foster is the author of “Why We Bite the Invisible Hand” (Pleasance Press, Toronto, 2014), on which I had occasion to comment on Lost Legacy last year, partly favourably - he is an excellent writer - and partly unfavourably - he believes the usual modern nonsense about the “invisible hand”).

Here he Is lambasting George Akerlof and Robert Shiller for taking seriously modern myths of Adam Smith’s use of the metaphor of “an invisible hand”. I have criticised Akerlof and Schiller’s thesis on Lost Legacy and would so again for their portrayial of Smith’s simple metaphor as if it has anything to do with modern (post Pail Samuelson’s 1948-2010) treatment of it as “the invisible hand” of the market.

That error is the kernal of the confusion of modern economics. Peter Foster’s quarrel with the Akerlof and Schiller “phishing" thesis is spot on but Foster shares the same core fallacy of the so-callaed invisible hand supposedly at work in market economies ensuring the common good.

There is no such invisible hand and Smith never claimed that there was. Smith simply observed that if a merchant prefers to avoid foreign trade and intentionally invest locally, he will unintentionally and arithmetically add to “domestic revenue and employment”, i.e., in modern terms, add to GDP, which can be a public benefit. Hardly a startling conclusion! Yet so much is read into such an obvious outcome even by Nobel Prize winners from top universities.

Moreover almost the entire economics profession has bought into Paul Samuelson’s misreading of Adam Smith. The invisible hand is a metaphor for the motivated actions of people may be having unintended outcomes. It was not about a mystical, even miraculous, controlling force at work in market economies.

I would hope that Peter Foster would come to see what Smith meant and where Akerlof and Schiller got it completely wrong.

Wednesday, November 11, 2015

MYTHS OF NEOCLASSICAL ECONOMICS

“Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to moden economic thought. Much of the rest of Smith is discarded or simply ignored.”- (See HERE)

Comment

NeoClassical economics is mired in errors; much of it is in a fantasy world that does not exist in reality. People do not behave in the manner of precise mathematical ways. Electrons might behave that way but people are individuals subject to a whole range of motivations and consequential actions.

There is nothing magical, nor miraculous about the metaphor of “an invisible hand”. Human motivated actions have intended consequences and those actions may have unintended consequences, some of which may have beneficial consequences and some which may not be. Some actions lead simultaneously to unintended outcomes (such as an insecure merchants investing locally which adds to "domestic revene and employment" - see Smith’s Wealth of Nations, Book 4) and some to unintended outcomes years, even lifetimes or generations later (see Smith’s Moral Sentiments, Part 4).

Monday, November 09, 2015

AT LEAST ONE OTHER AUTHOR SEES THROUGH THE MODERN MYTH OF THE INVISIBLE HAND

“Yeger”posts on Opinion HERE“The fabricated myth of the invisible hand”

This is the nearest anyone else has gotten to the truth about Adam Smith’s meaning embedded in his reference to the “invisible hand” in only three times that he mentioned it in all of his published Works:

“However, everything we know about the invisible hand is wrong. Selfish behaviour by everyone neither leads to a harmonious society nor to an efficient economy, and Adam Smith never argued that way. In fact, he frequently argued that selfish actions by certain individuals were harmful to society as a whole. The invisible hand is nothing but a fabricated myth and the picture we cherish of Adam Smith is an ideological construct.

The fundamental problem is that Adam Smith never defined the idea. Our knowledge of the invisible hand is therefore an interpretation of how Smith used the phrase. This leads to another problem: In all of his writing the invisible hand only appears 3 times.”

1:

“Smith argued that the ancient greeks were superstitious because they believed that the** invisible **hand of god, and not the laws of physics, was responsible for the natural events.”

Comment

Correct: Smith referred to the pusilanimous superstition of the Romans that their god, Jupiter, fired thunderbolts at enemies of Rome (particularly during thunderstorms). Jupiter was often depicted on coins and other images with lightning emanating from his finger. It was a powerful image for believers in a superstitious belief.

Having experience of such thunder storms while living in Rome on a UN FAO assignment in the 1970s, I can testify to the noisy nature of such storms. In summary, this use of the invisible hand of Jupiter in Smith’s “History of Astronomy” (posthumous, 1795; written between 1744-58) was not as a metaphor - it was an adjective describing what they believed was Jupiter’s albeit invisible hand.

2.

“In the second appearance of the invisible hand Smith argued that medieval landlords were obliged to share parts of their wealth with their servants to prevent them from starving. Thereby landlords would further the good of society without their intention or their knowledge.”

Comment:

Realistically, landlords were motivated by their dependence on feudal serfs/slaves for their production of agricultural produce upon which the landlords’ power depended. If their serfs had no food they could not labour in the landlord’s fields; the serfs laboured in order to receive their shares of what they produced - realistically, their shares depended on the landlord’s unsympathetic overseers.

There were no markets involved. The only consequence as Smith put it, was the long term “propagation of the species” not the good of society. Credit, if there was any to be noted, belonged to both landlords and their serfs, and their purely unintended co-operation, largely enforced by violence.

3.

“The final appearance of the invisible hand was in the context of national security. Smith warned that if a society was outsourcing too much of its production for higher profits national security would be threatened. However, Smith also expected merchants and industrialists to favour their home markets because they knew local laws and customs and would also prefer the reduced uncertainty of trading in close proximity. Due to this preference the merchants would further the interests of society without knowing or intending it.”

Comment

Tangental, at best.

Smith specifically refers to a merchant whose behaviour was guided by his concerns about the security about his capital if he sent it abroad to foreign jurisdictions where he did not know well the foreign people he dealt with or have faith in their legal systems should he be cheated and sought redress.

Hence, he invested domestically. His intention was to avoid the added risks of exposing his capital to avoidable foreign risks. Smith spent nine paragraphs explaining this situation in Wealth of Nations (Book IV. Chapter 1, paras I- IV). He makes no reference in these paragraphs to “national security”. It was solely concerned with the security of the merchant because it was that insecurity that motivated the merchant to keep his capital closest, intentionally under his control.

However, in acting intentionally in this manner, Smith asserts that the merchant unintentionally beneffited the domestic economy by arithmetically adding his capital to “domestic revenue and employment”, which was a “public benefit”.

Yes, “It was the modern economists who created this entirely new Adam Smith and by extension the idea of the invisible hand.”

The process of creating myths about Adam Smith’s use of the “‘invisible hand” metaphor in post-1948 economics was boosted by Paul Samuelson’s famous textbook, “Economics: an analytical introduction” McGrae Hill, 1948-2010. That myth grips modern economics almost unanimously today.

Saturday, November 07, 2015

ANNOUNCEMENT

ANNOUNCEMENT

While my domestic situation is no less serious than previously announced, causing me to cease regular blogging, I am now assisted by an excellent care worker - plus, of course by my family - and this has relieved me sufficiently for an hour of so a day. Hence some recent very short Blog posting has been possilble, plus some journal refereeing and source reading. I remain a long way off regular academic work.

My work on my new paper on Adam Smith is getting some of my attention, though it is still very much incomplete. I have written to those readers who registered an interest in receiving it when finished by informing them that work is slowly resuming.

Should other readers wish a copy when it is finished please send to me your email at: gavink9@gmail.com

LOONY TUNES Nos 121 AND 122

“discusses his optimism for gold and “the invisible hand” of the Plunge Protection Team”

in “The Physical Gold Markets In The East Will Prevail”

3

Dave Elbert posts (8 November) in the Elbert Files in Business RecordHERE

“Capitalism isn't always pretty”

“James Grant in the Wall Street Journal argued that it is better to have interest rates set by what Adam Smith described as “the invisible hand” of the marketplace than by the “all too visible hand” of the Fed.”

Comment

People like Dave Elbert and James Grant are paid good money to write factually but they also purvey absolute nonsense, as in the case above. Adam Smith never described as ““the invisible hand” of the marketplace. Some modern economists assert, without evidence, that Adam Smith used the invisible hand metaphor in such a manner. He did not. James and Dave have made it up.

“Similarly, he said the people accepted BN, MCA and MIC which promotes capitalism, an ideology pioneered by the Englishman Adam Smith.”

Comment

From a post by an ambitious Asian politician seeking to govern his county who demonstrates his ignorance of history and modern facts. The obvious response is to note that Adam Smith was never an “Englishman” - he was born in 1723 in Kirkcaldy, in Fife, a county in Scotland, making him a Scotsman. He occasionally lived in England but never long enough to be confused as an Englishman, spending most of his life in Scotland. He also visited France for some months.

Moreover, Smith never “pioneered capitalism” - he never knew the word ‘capitalism, which was first used in English in William Thackeray in 1854 in his novel,The Newcomes, issued in weekly parts from 1853 to 55, though it is clear from its context that this refers to finance capital, rather than to a ‘system’. Financiers in 19th century novels tend to get a bad press; see also Trollope’s ‘The Way We Live Now’.

Archival Note:

From “Lost Legacy”, 9 February, 2007:

“The origin of the word ‘capitalist’ is of much earlier vintage: in French, A. R. J. Turgot (1727-1781) used ‘capitaliste’ in his essay, ‘Reflection on the Formation and Distribution of Wealth’ (1769-1770), and William Godwin used its English version, ‘capitalist’, in his Political Justice (1794).”

Friday, November 06, 2015

NEW PLAY ABOUT ADAM SMITH ANNOUNCED

THEINVISIBLE HAND AND LIFE OF ADAM SMITH IS FINALLY UNCOVERED!

‘The Invisible Hand’ is a new play about the globally renowned, yet elusive, Adam Smith - a Scottish moral philosopher, pioneer of political economy, and a key figure in the Scottish Enlightenment. He was also Kirkcaldy’s most famous son – yet how much does anyone know about him and what he did for the modern world?

Perhaps it is time for Kirkcaldy to embrace the life of Adam Smith as well as his name, it is a life we can all be proud to remember and enjoy.

On Friday 20th and Saturday 21st November, ‘In Company Theatre Productions’ and 'Kirkcaldy4All' are presenting a rehearsed reading of the new play in the Old Kirk, Kirk Wynd.

Most people have heard of Adam Smith, visited the Adam Smith Theatre but very few people know very much about him and his real association with Kirkcaldy. He is perhaps best known for his economic theories based on his famous book, 'The Wealth of Nations' which apparently Margaret Thatcher carried around in her handbag. But he was so much more than an Economic scientist, he was a philosopher, a teacher and a man of letters.

He was a leader of the Scottish Enlightenment of the 18th Century, a movement that changed Scotland from a poor, backward and bigoted society to one that led the world in social philosophy, social change and religious freedom.

Adam Smith’s first book, the 'Theory of Moral Sentiments' is less well known than 'The Wealth of Nations' but it was equally influential. Both books were read all over world and Adam Smith became one of the most famous men in the world during his own lifetime.

The play 'The Invisible Hand' tells the story of how Adam Smith reached this pinnacle of success, the famous people he met along the way, their influence on him and how his mother, a strong, resourceful, Kirkcaldy woman, tried to influence him away from what she perceived as being the destructive forces of opinion at home and abroad.

Adam Smith is a fascinating character in himself, socially awkward, with a strong Kirkcaldy or Fife accent; he was vague, absent minded and some thought, eccentric. He never married, his mother was the dominant force in his life, but the ladies liked him thinking him peculiar but essentially kind and thoughtful. He came to the attention of 'the authorities' due to his involvement in the French Revolution, and the story of that involvement is told in the play.

The play brings to life the conflict Adam Smith felt about his inability to finish his work by bringing his two famous books together in a third volume, he struggled with his mother’s wishes and his desire to embrace the changes being brought about in France and America. The play is brought up to date by the discovery of letters between Adam Smith and his mother together with pamphlets concerning his involvement in the French Revolution. The conclusion of the play brings to the two stories, the past and the present, together.

There seems little doubt that Adam Smith was not only a famous and influential thinker but a good man, a decent whose concerns were for the ordinary people of Scotland and their welfare in an ever-changing society. It is clear that Kirkcaldy was the centre of his life, he wrote his books there and spent years of his life in the town with his beloved mother.

At the end of each evening, a glass of wine is on offer to anyone who might wish to stay and discuss what they have seen and heard, perhaps contribute something they have heard about Adam Smith and generally be part of what we hope will bring to life a truly significant part of Kirkcaldy's heritage.

Comment

This is good news in that it brings Adam Smith to the attention of a wider circle than those scholars who presently study his Works and his bibliographic details.

If I ever get to see the play I will write about it.

Adam Smith was a much broader and deeper scholar than even he is currently famous for, including among many scholars who purport to study him. The ‘missing’ third volume on Jurisprudence really is a great loss to world knowledge, when its manuscript was burned under orders Smith gave to his literary executors, Professor Joseph Black (Chemistry) and James Hutton (Geology), from his death-bed in 1790.

Many other manuscripts were also burned including his “Lectures on Rhetoric and Belles Lettres” containg his contribution to the general criticism of Classical Rhetoric as used in Scottish and English Law Courts. Fortunately two sets of lecture notes compiled by students were found in a old house sale and in a second-hand shop in Scotland. Much of his correspondence was also burned.

Hence, news of “Kirkcaldy4All”, the play, is most welcome. Congratulations to all those concerned,

Wednesday, November 04, 2015

MARK THOMA IS ON TARGET ABOUT THE HABITS OF MANY ECONOMISTS/IDEOLOGISTS

“Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?”

Comment

Mark Thoma is a regular economist whose Blog HERE I read almost every day (follow the link) and have done since 2005.

Needless to say, I welcome his post because it asks a question that is seldom asked and even fewer times answered. Among those few who do, most take it as an opportunity to justify their own ideological positions and to denigrate their opponents' ideologies.

Lost Legacy tries to avoid taking sides. Its aim is to account for the writings and ideas of Adam Smith, based on his texts and what we know of his life’s work (see Ian Ross, The Life of Adam Smith, OUP, 1978, 2nd ed 2010). Reading Mark’s post is a good place to start.

Monday, November 02, 2015

ANOTHER GLIMMER OF LIGHT IN THE FOG OF MISUNDERSTANDING

“Ever since the Occupy Wall Street protests grabbed international headlines in 2011, the issue of income inequality has moved to the forefront of public discourse. Regardless of where someone finds themselves on the political spectrum between liberal and conservative, the fact that income gains in the United States have increasingly gone to the wealthiest citizens after the 1970s is not in dispute. In a speech at the Federal Reserve Bank of Boston in October 2014, Federal Reserve Bank Chair Janet Yellen mentioned various highly credible studies which demonstrate “significant income and wealth gains for those at the very top and stagnant living standards for the majority,” and said that “the extent of and continuing increase in inequality in the United States greatly concern me” (Parker). Where people disagree is in identifying the cause of this inequality, and what steps should be taken to address it. Generally speaking, people with conservative viewpoints believe in an extreme form of free market economics, where the “invisible hand of the market” in laissez faire capitalism works to distribute the fruits of effort based on merit, and where government intrusion through public policy is seen as a form of tyranny that robs the gains created by the producer class in an ideal meritocracy and distributes them to the undeserving, underperforming classes. The flaw with these viewpoints is in the assertion that such an “invisible hand” exists, that it acts to create an egalitarian outcome, and that public policies tend to benefit the poor. The simple truth is that there are inefficiencies inherent in capitalist economics and public policy that disproportionately benefit the wealthy over the poor and work to maintain the status of the wealthy and powerful elite.

First, it is important to understand the term “invisible hand” and how it has come to be used to describe economics. The term originated from Adam Smith’s seminal work, The Wealth of Nations, widely considered the foundation of modern economics. In this initial work, however, the term had a more nuanced meaning than it has today. Smith wrote:

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention”.

Smith specifically references the support of domestic over foreign industry as a self-interested action that supports society through the unwitting decisions of an individual actor. Even in this more nuanced instance, it is questionable whether an individual actor in a modern global economy can exert noticeable pressure on larger trends. …"

[Read the whole piece by following the above link]

Comment

The above piece is interesting, though the whole post contains many errors. Nevertheless, it is worth reading as an attempt to cut through the falsehoods of the current misunderstanding of Smith’s use of the “invisible hand” as a metaphor and not as an analytical description of how market economies function despite an individual’s so-called “selfishness”, etc. Smith’s main point was that by investing locally from fear of risking his capital abroad, the merchant intentionally added his capital to the domestic economy, which unintentionally benefitted the local economy arithmetically - not “miraculously”. See: Wealth Of Nations, IV.II. 1-10: pp 452-56).